ACFE Insights

SPECIAL TO THE WEB

Robert Tie, CFE, CFPContributing Editor, Fraud Magazine

Is the recent re-appearance of a 1980s fictional swindler worthy of CFEs' professional attention? You bet, because it's a more-relevant-than-ever character study of a cunning, driven and egocentric fraudster.

Crooked oil baron J.R. Ewing is the antihero of famed soap opera Dallas, which has just returned to television after a 21-year hiatus. As senior partner and de facto chief executive of the family business, J.R. has always been up to no good. And now, in 10 new episodes, he plans more felonious deceptions.

J.R.'s business associates have every reason to be nervous. His past frauds spanned a broad range of targets and techniques: conspiring to "fix" oil prices, violating a U.S. State Department embargo by clandestinely selling oil to Cuba and setting up an illegitimate shell company to fraudulently hide his business interests from others entitled to full disclosure, including his honest junior partner, younger brother Bobby.

Whether or not J.R.'s crimes pay off, the show focuses mostly on what he plots against others and how they retaliate. But seldom do misfortunes befall J.R. or Ewing Oil because of something he has not done.

Of course, real-life executives cut from the same cloth as J.R. hurt their companies actively, by their deliberate frauds, and passively, by their negligent inattention to detecting and preventing others' illicit schemes.

A case in point: At the 23rd Annual ACFE Fraud Conference & Exhibitionin June, convicted felon Mark Whitacre told how he and other dishonest executives claimed $660,000 in phony-expense reimbursement from their employer, agribusiness giant Archer Daniels Midland, to cover personal losses they had suffered as victims of an advance fee scam (see Fraud Examiners Manual, section 1.838). Obsessed with their own enormous price-fixing conspiracy to cheat ADM customers, these J.R. clones were greedily blind to any and all fraud risks threatening them or their company.

In the oil business, as in other industries, that kind of myopia can lead to considerable and sometimes undetected fraud-related losses.

PROACTIVE LOSS PREVENTION

Tim J. Leech, CFE, FCA, CIA, CMA, is managing director of global services at Risk Oversight Inc., a Toronto- and Calgary-based consultancy that advises corporate boards and management on mitigating their organizations' vulnerability to fraud and numerous other perils. Early in his career, Leech worked in the energy sector in Calgary as Gulf Canada Resources' audit manager in charge of loss control.

"To do my job as well as possible, I went down to Houston and learned how to steal oil and gas," he recalled. There, an energy industry trade group schooled Leech in the various techniques thieves use to defraud oil producers.

"In one scam, the trucker who hauls crude from your well adds a secret compartment to the inside of his main tank," he said. "And every time he pulls up at your site, he surreptitiously puts some of your product in that hidden extra tank. Then, after he delivers the oil he legitimately took, he makes a second stop to off-load the oil he stole. You never know the difference, but it all comes off your bottom line. And he keeps on bleeding you until you wise up."

Another fraud was more sophisticated. Wells often discharge a mixture of oil and salt water. Producers separate the two, and truck the water away as waste. But scheming employees sometimes divert oil into the water tankers, which haul it off for surreptitious refinement and theft of oil the producer's management never knows it has lost, Leech said.